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EM FX remains under pressure – TDS

FXStreet (Edinburgh) - In the view of strategists at TD Securities, the EM FX space could remain under significant pressure in the upcoming periods.

Key Quotes

“In either circumstance, there is a significant risk that EMFX continues to operate as the vent for negative pressure and general market sentiment”.

“In the past, investors used to take US expectations as the independent variable to build a sound top-down EM strategy. Now that the Fed wants to share the onus of creating the first round of global expectations, market behaviour is also less predictable”.

“Market powers have been enhanced at the expense of macroeconomic dynamics, and the Fed is less impervious to general conditions than it used to be. In other words, by allowing market volatility outside the US to become one of the Fed’s main deciding factors, the Fed has de facto increased markets’ influence on policy via the potential for speculative attacks on Ems”.

“As long as EM weaknesses remain exposed, these attacks will continue, making cheap levels appear retrospectively rich”.

“This is very much the case for Brazil and the BRL in particular, and is the greatest risk EM investors now face”.

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